AAHyes indeed the muck of the oirish it now seems every one else is responsible for the grotesque situation they now find themselves in, not to get too technical here but the place collasped under it own absurdities and corruption that have along tradition in irl, add a lot of free eu handouts easy credit and wallah you have a boom suddenly there is cash in the hands of many in fact most unacustomed to prosperity just went bannanas,the so called elites and political class just filled their boots the vulgarity and hubris was astonishing every two bit builder had a chopper for going to the races all upstaging each other,kinda like watching a parade of tinkers on horseback for the first time ,so many became quite delusional agressive and rude irl was indeed unpleasant to visit for a period of about 10 yrs in fact the prime minister AHERN invited those concerned about all this madness to committ suicide iam sure all the foriegn embassies in dublin were impressed ,it was obvious it would end in tears now its time to take the medicine for the next decade or two with a begging bowl in each hand lets hope lessons have been learned

The solution is clear. To me at least. The regulator must specify a threshold of capital it requires for any bank past present or future to maintain. Any banks failing to meet this standard is required to re-capitalize or lose its licence and face liquidation.

A chapter 11 process, or something analogous to the US process, is initiated failing which a chapter 7 process is initiated.

Under chapter 7, the nationalized banks will cost the government dear. The as yet un-nationalized banks will cost the equity holders dear. The debt holders will be reorganized into the equity.

Fair conclusion. One comment: the problem is not an illiquid market, the problem is a saturated market. There is massive oversupply of commercial property, residential property and development land, most of it indebted.

Furthermore, the maximum discounts applied by the stress tests to residential property have already been reached (at the estate agent offices if not in the property supplements) and will fall considerably further. Upward-only rent reviews in the commercial market are also artificially protecting book values.

We do however have one last trump card left in our back pocket, and that is default. Hypothetically if we were to default the banking crisis would spread to both Germany and France as that is where most of our debt lies.

Merkel and Sarkozy we here in the land of the sub-prime have two words for you: GAME ON.

Avaricious Irish banks & their salivating creditors, who threw caution to the winds, need to take the onus of responsibility for their fiscal insanities & rash atrocities. They need to walk a mile (or two), in frigid & austere 'Icelandic' shoes..

Now the billion euro question is, whether it's too late to save the nation's crumbling economy from utter melt-down??

@ Timothy Naegele:

You nailed it. I could not agree more with your educated surmise. Incidently, I found your blogs, both cogent & erudite. Particlarly your sage advise to small-time investors & the incredibly dangerous waters they tread in. I gotta agree, Madoff was just another 'fall guy', while the Big Crooks like GS & JPM &.. Co UnLtd, go laughing all the way to their off-shore coffers.

"This has nothing to do with Ireland or Irish culture, or stupid notions of being experienced at "being rich". It is the brutal consequence of simple economics. The ECB (under German pressure) insisted on a too-low interest rates for years. Germany preferred to suffer slow painful devaluation instead of reforming its labour market. The consequences were that German lenders looked elsewhere to get higher returns in Ireland, Spain, Portugal. German banks pushed money onto Irish ones, who in turn became ever more reckless with lending.

It was competition, without proper regulation. Trouble is, the free market breaks down with debt like this. Once one bank started lending aggressively it was rewarded with huge growth. Sensible lenders were out-competed in the market and eventually everyone was lending recklessly. The market rewarded the most reckless behaviour."

I fully agree that "It was competition, without proper regulation", but I would say it was the brutal consequence of SIMPLISTIC economics. Isn't much the same thing happening today with quantitative easing's approach to keeping interest rates low in the advanced economy countries?

The "easy" money is not any more in mortgages but in speculation in commodities, mainly conventional fuels, over-fertilized and inhumanely farmed agricultural produce, and rare metals. It has become "easy money" because regulators, whether legislating or overseeing, have lost comprehension of the distinction between "investment" and "speculation". (The distinction remains in the original Latin, thank God).

The idea of "investment" has been recklessly conflated with the idea of "speculation". For a workable current-day distinction between the meanings of these two words, refer to:

and please feel free to comment so that the distinction there can be made yet clearer to more people.

I believe this loss of distinction between the meanings of these formerly very clearly distinguished words lies in the habit, in organizational life, of putting the value discipline of "verbal integrity" above that of "honesty". In my coaching firm, we make a big deal out of reversing this diabolical habit, by using the following definitions:

HONESTY: The discipline of avoiding either falsehood or deception and of being reciprocally open about intents and evolving intentions

VERBAL INTEGRITY: The discipline of being true to one’s word, or promptly honourable in warning of exceptions arising because one was unable to anticipate intervening circumstances.

I recall vividly how quickly after joining organizational life from Cambridge I learned that, to survive in a corporate career, one had to value verbal integrity above honesty. Until we reverse that conventional but nonetheless highly dysfunctional valuation, we will continue to have crises of irresponsibility and criminality in big business, politics, and regulation.

Arguing “hitting bank bondholders will serve only to spook creditors in other euro-zone economies” can only start with the assumption that governments have no creditors. In fact, in order to get the financial sector back on track and avoid the worst kind of uncontrolled spooking, like governments going belly up, our best chances lie in urgently imposing a hell of a lot of very real spooking, hopefully of a controlled nature.

Noonan admitted yesterday the ecb has threatened to withdraw funding if Ireland defaults on senior debt. how can the "peripheral" countries operate with a central bank that has conflicting and competitive political loyalties. This fed the boom and will drive the bust.

Perhaps the most important comments in this article are the following:

"The first question is whether the stress-test results represent a credible upper limit on the cost of Ireland’s banking disaster. . . . 'In this game, you never know,' says one insider."

This is an understatement. The real question in assessing the health of Ireland's banks, and their long-term stability and viability, is whether an accurate determination has been made with respect to their solvency if their loan portfolios were marked-to-market. This determination becomes even more critical as Irish property values decline during the rest of this decade, and as more borrowers default, and as the banks sink farther—possibly beyond the government's ability to help.

Clearly, Ireland's politicians can offer nothing but demagogic mutterings, inter alia, because they are part of the problems, not the solution.

There is no question that Ireland is a "basket case"—and the other certainty is that things will get worse, far worse.

I have never heard an Irishman whine about racism before; it's comical. My primary source of information about what was going on is a close friend, Irish, living in Ireland. We are in contact every day. As for friends, I was born in Boston; I probably have as many Irish friends as you do. I will not even get into in-laws.

Those other places of excess are not beggars, insolvent, surviving on the charity of the EuroZone. That rather changes the case.

As an Irish man living abroad I think its only fair that we Irish recognize the incompetence, corruption and greed that lead to this mess regardless of external influences. Having said that I think its wrong to saddle the average tax payer with the bill and agree that the approach being taken by this new government is disappointing in that it serves European bankers interests much more than that of local voters (who must be wondering what happened to those election promises ....).
As a final comment why do I find the title of this article to be in poor taste?

'In fact it was RBS that first started the aggressive mortgage lending in Ireland - a UK bank, that not coincidentally, has gone spectacularly bust and is now in state hands.'

Do you have any evidence of this? RBS was never an aggressive lender, and did not go over long on bad debts to my knowledge in any market. It was bankrupted by an act of hubris in buying ABN Amro, which turned out to be a timebomb.
Anglo-Irish, Bank Of Ireland and others were lending without oversight and with complete impunity however. Rather uniquely for the global credit crisis, Ireland's problems were entirely made domestically.

@bampbs
I see you have found the stock excuse of "One of my best friends is Irish/Black/Indian/Chinese/whatever"

I see vulgar display of excess everywhere I go. Walk in to Harrods, go to Hong Kong, Cairo, Las Vegas, you will see plenty of "vulgar excess"

Where you fall down is that you think it is something in the Irish character that makes them behave this way, and you think you can justify it by quoting your self-loathing Irish emigrant.

So, no, I don't prefer your revised explanation, I prefer economics. When you keep interest rates lower than inflation for a decade this is what you get, no matter what country you go to. Corruption and greed are a by product. The UK is almost as bad and would be worse if they had the interest rates that the ECB forced on Ireland. In fact it was RBS that first started the aggressive mortgage lending in Ireland - a UK bank, that not coincidentally, has gone spectacularly bust and is now in state hands.

Phillip O'Carroll, my friend in Ireland is Irish, and has been going back and forth between Ireland and the States for decades. He doesn't make any excuses for you, and he has often mentioned the vulgar display and bad financial judgment of people unused to wealth. His opinion is that the Irish property bubble required ignorance, stupidity, corruption and greed on a colossal scale throughout the populace. Do you prefer that ?

What you say is paternalistic borderline racist nonsense rehashed from the media. This has nothing to do with Ireland or Irish culture, or stupid notions of being experienced at "being rich". It is the brutal consequence of simple economics. The ECB (under German pressure) insisted on a too-low interest rates for years. Germany preferred to suffer slow painful devaluation instead of reforming its labour market. The consequences were that German lenders looked elsewhere to get higher returns in Ireland, Spain, Portugal. German banks pushed money onto Irish ones, who in turn became ever more reckless with lending.

It was competition, without proper regulation. Trouble is, the free market breaks down with debt like this. Once one bank started lending aggressively it was rewarded with huge growth. Sensible lenders were out-competed in the market and eventually everyone was lending recklessly. The market rewarded the most reckless behaviour.

Ordinary risk models broke down as well. The ratings agency gave Ireland triple A until 2008. When a country or an institutions ratings go from AAA to junk almost overnight, the logical conclusion is that the ratings agencies simply cannot judge risk at all.

Poor Ireland had never been rich, and had no idea how to handle it. I had daily reports of local madness from a friend who moved there (from Cambridge, where he sold his house for 70 times what he'd paid for it in 1972) just in time for the final insanity before slaughter.

1. This is the fifth attempt to bail out the banks
2. There is no scientific or accounting way to determine a "worst case scenario" so on form, expect the worse case scenario to be revisited and the cost of the bailout to be revised upwards
3. Default in a European country is inevitable, so Ireland might as well be the first.

I should qualify the last point. Default is not inevitable, if the European powers, accept the glaringly obvious fact that keeping interest rates absurdly low to help Germany for 2 decades has a cost in encouraging unsustainable borrowing. If you want to keep the euro as a credible currency you have to create a transfer system as in the US.

Ireland will probably not be the first European country to default. No country wants to be the first but Ireland has a big piggybank (its pension reserve) which it is breaking into.
Default is not perhaps not inevitable for Ireland, but I think it may turn out to be the least painful to tax payers. I say this not because I want it to happen. A lot of people will lose money and jobs in a default, and Ireland will end up 25-40 percent poorer, by my guess. However, Ireland will still be a relatively rich country, and Irish workers will again be competitive to employ. Already US companies have seen their wage bills fall because Irish employees have agreed unprecedented pay cuts. However, a lot of this has been eaten up by the insane rise of the Euro. With a new currency, Ireland will reduce real wages by 40-60%

It would be nice to be able to default and stay within the Euro, but it is not going to be possible, given the language I hear from Germany these days.

People talk about the reputational costs of default but frankly, as far as the financial services industry is concerned, Ireland has alreadly lost its reputation. Forget about reputation, it is already gone, it is time to build on real industries instead.